With the evolution of the era of digitisation, the global financial markets have witnessed the uprising of numerous electronic currencies. An electronic currency is a currency available only in electronic or digital form. These currencies can be invested in, bought, and sold within the digital space, giving them several advantages over fiat money. This in turn has resulted in the immense popularity of these currencies, with huge traffic on popular and reliable trading platforms like the Bitcoin Compass App.
The increasing popularity of digital currencies have very important implications for economic growth, both at the global and national levels. The exponential growth of digital currency transactions brings with them a whole new world of business opportunities, especially for small scale businesses. Increased efficiency, quicker and easier access to capital, decentralized control, and increased autonomy of the consumers are some benefits of digital currencies that can augment economic growth in various economies.
How does electronic money augment economic growth?
The most important benefit of using electronic money is the efficiency with which transactions can be made. This efficiency attracts many consumers and encourages them to invest more in this sector. This in turn opens up numerous business opportunities related to this sector and provides scope for the expansion of small businesses. Some specific benefits of electronic money are:
- Using electronic money reduces transaction charges. Since digital cash is both acquired and stored digitally, no overhead charges are involved. In the case of transactions of paper money, several additional expenses associated with the maintenance of branches of banks, payment of officials and clerks, and other fees, which increase the transaction charges payable by consumers. When dealing with electronic money, these expenses are reduced.
- Electronic money encourages cross-border transactions. With the help of electronic money, international transactions can be very easily made. Since digital cash is not controlled centrally, international transactions do not involve any additional hassle or additional charges. The cost of international transactions is the same as the ones within the country.
- Electronic money is accessible to anyone who has access to the internet. Several banking facilities like loans and credit are not available to people from backward economic groups. The use of electronic money makes these facilities available to everyone.
These benefits of electronic money bestow it with a very significant role in economic development. The use of electronic money can lead to large-scale enlargement of business opportunities. The reduction of transaction costs encourages people to engage in monetary transactions through the internet, strengthening the grounds for eCommerce.
Small businesses can profit from the benefits of electronic money as it can encourage international trade. The transnational attribute of digital currencies makes it possible for small businesses to participate in international trade, thereby expanding their market. Added to this is the increased accessibility of capital, which would make it possible for everyone to start their businesses, further increasing the economic activities in all countries. Electronic money has the capacity of bringing countries together and providing great scope for their social and economic development.
Drawbacks of electronic money
Although electronic money can open up new avenues for economic growth in all economies, it is not without demerits. While digital currencies can foster economic growth, they also have the potential of causing large-scale damage to the global economy because they pose three serious threats. They are:
- Money laundering: Since digital currencies enable seamlessly and at times, unchecked transactions both at national and international levels, money laundering becomes a serious threat.
- Taxation: Since digital currencies are not issued or controlled by any centralised agency, taxing becomes a major concern.
- Untraceability: In the case of digital transactions tracing the individual who conducted the transaction becomes extremely difficult. This untraceability fosters unaccountability, further promoting criminal activity. The absence of a centralised controlling agency further encourages this as illegal international transactions become easy to conduct.
Electronic money comes with both benefits and possible threats. While its positive impacts have the potential of bringing about large scale economic growth in all economies of the world, it also has the potential to make online transactions completely unsafe and harmful for consumers. However, looking at the extent to which the benefits of these financial tools are attracting users every day, it is safe to predict that these are going to gain predominance in the global market soon.